Minicomputer pioneer Gordon Bell helped find staff

Rough draft of first agenda

Anticipating the FAQs from executives

How many great corporate organizations were created with the words, “Once upon a time?”

Not many, I’ll wager. Yet that is exactly how Microsoft Research, one of the world’s biggest and most prestigious corporate research institutions, came to life back in 1991.

“Once upon a time,” former Microsoft CTO Nathan Myhrvold wrote to Bill Gates in the memo that spawned the research group, “it was very clear what our product agenda was—simply take the ideas which were successful on ‘big computers’ and move them to ‘little computers.’” But, Myhrvold asserted, “the days of taking something off the shelf and adapting it to our ‘little computers’ are over…In very general terms, we have to invest in our future by doing more work in research and technology creation.”

I have been thinking a lot about MSR lately. That’s because the organization, 22 years old this month, is in the midst of a significant realignment of its mission. On July 11, Microsoft announced a broad reorganization designed, in CEO Steve Ballmer’s words, to “enable us to innovate with greater speed, efficiency and capability in a fast changing world.” As part of this overhaul, the company announced some big changes at its research arm, which has grown to include some 1,100 scientists and engineers working at seven major research labs and six other technology centers or smaller outposts around the world. Chief among those changes was the news that Microsoft senior vice president Rick Rashid, who had been at the helm of the organization since its founding, was relinquishing the reins of MSR to take another job in the company.

It is hard to say so early in the transition what, exactly, the changes mean for Microsoft Research. I spoke this week with Peter Lee, his successor. Lee was effusive in his praise of the MSR founder and the organization and culture he created. He was also candid in saying that some fundamental changes are underway designed to weight MSR more toward “mission-focused” research directed at practical problems that relate to Microsoft’s business, and adjusting the balance between that and more blue sky research without direct commercial payoff.

I plan on writing more about my conversation with Lee and the particulars of MSR’s evolution in the coming weeks. But this article is not about the future. It is about how Microsoft Research was created—and the lessons its creation may hold for big companies navigating today’s ever-more-rapidly changing technology landscape.

What follows are some very brief highlights from the original, never-before-published memo that spawned the lab and a briefing presentation Myhrvold gave to senior Microsoft executives after Gates approved the plan. Myhrvold, now CEO of Intellectual Ventures in Bellevue, WA, wrote the undated memo and created the briefing slides in 1991. (I secured paper copies of them years ago while writing Guanxi, a book about Microsoft’s Beijing lab co-written with Xconomy deputy editor Greg Huang.)

I have posted Myhrvold’s slides with this article. The full memo, entitled “Microsoft Research Plan” and labeled “Microsoft Confidential,” is posted here, along with my more detailed analysis and commentary about what it means for today.

Many critics have taken MSR to task over the years, saying it has not contributed its share to Microsoft products—something its defenders, from Bill Gates to Rashid on down, have vigorously refuted. But whatever you think about Microsoft Research, the slides and memo hold valuable insights for how large corporations should view—and take responsibility for—their long-term future. They showcase how a major corporate research organization was born, but more importantly they offer a view of how research can be structured in a big company, why some research should exist outside of business divisions, how goals should be determined, and more.

“In the course of the next couple of years,” Myhrvold wrote, “our development organization will need access (and in some cases exclusive access) to technology which does not exist today. Although we are quite capable in creating products, our developers are not equipped for this task by themselves. This isn’t just for extra credit, in many cases it is needed just to fulfill the vision and commitment that we have already embarked upon. There is a lot of technology that we can and should count on getting from outside—either [from] university research or outside companies, but there are also some areas where we need to, or have an opportunity to, create new technology ourselves.” (Memo, p. 5, also see Slide 2)

What is Research? (Thoughts on the Research Continuum)

“One of the key distinctions which has to be made is the difference between doing advanced development, product development and research. Many companies confuse these issues to their detriment. We believe that Microsoft needs to have a full spectrum of development.” (Memo, p. 5, Slides 3-4)

Great Failures Don’t Mean Research Is a Bad Idea

“There are many examples of good research which does not benefit the company involved, often to extreme proportions,” Myhrvold wrote. “Xerox is an example of a company that did the right stuff at the right time with the right vision, and still lost. They invented the GUI [graphical user interface], and yet it never did Xerox any good.”

But, he cautioned, “research is no different than any other corporate activity—there will always be some spectacular failures. Every aspect of business is mismanaged by somebody, and it is not at all surprising that research is among them. When people focus on the question of ‘why doesn’t corporate research work?’, and use examples like those mentioned above, they are almost always overlooking the fact that you could equally ‘prove’ that finance, marketing, advertising etc don’t work either.” (Memo, p. 7, Slide 5)

Deliverables of Research

Myhrvold identified three key advantages that research can provide a company: a time advantage in introducing new products and technologies; better access to strategic technology; and knowledge and intellectual property for the company.

“You shouldn’t start research in an area unless there is a strong chance of getting a unique edge in one of these three ways.” (Memo, p. 9)

The Technology Transfer Problem

“Once you have created some great technology, there remains the problem of effectively transferring it to the development organization. Failure to do this effectively is a primary reason that research work is ineffective at many companies.”